Photographer: Qilai Shen/Bloomberg

HNA's Airline Unit Scraps Bond Sale as Surging Yields Sting

Updated on
  • Development comes after recent jump in China local note yields
  • HNA units stepped up bond sales recently despite higher yields

Chinese conglomerate HNA Group Co.’s flagship carrier canceled a planned bond sale after weeks of soaring interest rates that had forced the debt-laden group’s units to pay some of their highest borrowing costs ever.

Hainan Airlines Holding Co. had planned to sell 1 billion yuan ($151.2 million) of the perpetual securities in China’s local market this week to repay maturing debt, according to a prospectus posted Nov. 30 on the Chinamoney website. The cancellation comes amid growing strains for HNA Group from a debt-fueled $40 billion acquisition spree across six continents. The deals have invited scrutiny from regulators across the globe and put the company in the crosshairs of a Chinese government that’s clamping down on capital outflows.

Read more in this QuickTake on why HNA has been worrying regulators

HNA Chief Executive Officer Adam Tan said last week that the firm is considering selling assets in a sign that it’s capitulating to government pressure by reversing the string of acquisitions. The company’s deals made it the top shareholder of Deutsche Bank AG and Hilton Worldwide Holdings Inc.

“Our company decided to cancel this bond sale due to the market environment, as we’re getting toward the end of the year,” the Hainan Airlines unit said in a reply to questions from Bloomberg News on Wednesday. “Hainan Airlines has a sound business operation.”

HNA’s shopping spree has left units like Hainan Airlines increasingly reliant on smooth access to funds in the bond market to help refinance their borrowings. The conglomerate’s interest expenses more than doubled to a record 15.6 billion yuan in the first half from a year earlier. Its short-term debt expanded to 185.2 billion yuan, exceeding its cash-pile.

Borrowing costs have surged in China’s local market in the past month. Despite those soaring financing costs, units of HNA had stepped up fundraising in the domestic market, adding to concerns about the group’s debt burden.

Read more about the recent borrowing spree among HNA units

S&P Global Ratings said last week it had lowered HNA Group’s credit profile by one notch to “b,” or five levels below investment grade, citing the company’s significant debt maturities over the next several years and rising finance costs.

The cancellation stands out against the recent flurry of offerings from HNA units.

While the rising yields last month forced Chinese companies to cancel the most note sales since April, the units went in the other direction. They revived debt sales in November, following a lull after news emerged in June about a crackdown by China’s banking regulator.

In the most recent sale, Hainan Airlines, which has local ratings of AAA, sold a 270-day bond at a yield of 5.94 percent last month, equivalent to the yield on junk notes in China.

— With assistance by Judy Chen, and Dong Lyu

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